Audit framework - Essay Example

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Audit framework

the statutory audit report is a must for the company in the presentation of their balance sheet, income statement and statement of cash flows.
The standard statutory audit is characterised by an auditor performs normal auditing procedures to show that the financial statements are more credible than if no external auditor's opinion is attached. The statutory audit is implemented in order to prevent frauds and illegal acts.
As proof,Enron's income statement was window dressed. The company had recorded sales transactions that had never happened. Consequently, these fraudulent transactions would translate to higher sales. Higher sales would give a higher net income. a higher net income would give us a higher net assets. a higher sales would generate a higher stockholders' equity. In addition, the company did not record some of its losses. Enron had fraudulently window -dressed by presenting these Enron losses as losses of its off -shore companies. as a result, the unrecorded losses resulted to a net income that is higher than what the real net income should be. Convincingly, Enron's income statement was window dressed (Fusaro, and Miller 2002, 107)
Also, Enron and Arthur Andersen knew that recording fictitious sales and profits would increase stockholder investments. Enron and Arthur Andersen knew that recording fictitious sales and profits would increase stockholder investments. ...Show more

Summary

external auditing is characterized by the hiring of independent minded external auditor to give an opinion as to the fairness of the financial statement items. the purpose of external auditing is to give credence to the financial statement assertions prepared by the management of the company…
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